Venture Capitalists, Business Angels, and Performance of Entrepreneurial IPOs in the UK and France

24 Pages Posted: 4 Jun 2007

See all articles by Salim Chahine

Salim Chahine

American University of Beirut - Olayan School of Business

Mike Wright

Nottingham University Business School

Igor Filatotchev

City University London - Sir John Cass Business School

Abstract

Using a unique sample of 444 entrepreneurial IPOs in the UK and France, this paper analyses the investment patterns and the stock-market performance effects of two types of early stage investors: venture capitalists (VCs) and business angels (BAs). Extending existing research, we identify important endogeneity and institutional effects. Our findings indicate that UK IPOs have a higher retained ownership and lower participation ratio by BAs, but a lower retained ownership and participation ratio by VCs than in France. BA and VC investments are substitutes, and they are endogenously determined by a number of firm- and founder-related factors, such as founder ownership and external board 'interlocks', and underwriter reputation. UK VCs are effective third-party certifying agents who reduce underpricing in UK IPOs, whereas in French IPOs they increase it by appearing to engage in grandstanding. This certification effect is more significant in UK IPOs involving both high VC and BA ownership. Finally, underpricing increases with VC participation ratio, where the higher exit of VCs seems to increase the risk premium required by outside investors, in particular in the UK.

Suggested Citation

Chahine, Salim and Wright, Mike and Filatotchev, Igor, Venture Capitalists, Business Angels, and Performance of Entrepreneurial IPOs in the UK and France. Journal of Business Finance & Accounting, Vol. 34, No. 3-4, pp. 505-528, April/May 2007. Available at SSRN: https://ssrn.com/abstract=990921 or http://dx.doi.org/10.1111/j.1468-5957.2007.02045.x

Salim Chahine

American University of Beirut - Olayan School of Business ( email )

Bliss Street
Beirut 1107 2020
Lebanon
961-1-374-374 (Phone)

Mike Wright (Contact Author)

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom
+44 115 951 5257 (Phone)
+44 115 951 5204 (Fax)

Igor Filatotchev

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
22
Abstract Views
1,302
PlumX Metrics